CEO compensation, diversification, and incentives

• 成果类型: Article
• 署名作者: Jin, L
• 署名单位: Harvard University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/S0304-405X(02)00150-2
• 发表日期: 2002
• 页码: 29-63
• 关键词: Executive compensation; diversification; firm-specific risk; incentives; pay-performance sensitivities

摘要

This paper examines the relation between chief executive officers' (CEOs') incentive levels and their firms' risk characteristics. I show theoretically that, when CEOs cannot trade the market portfolio, optimal incentive level decreases with firm's nonsystematic risk but is ambiguously affected by firm's systematic risk; when CEOs can trade the market portfolio, optimal incentive level decreases with nonsystematic risk but is unaffected by systematic risk. Empirically I find support for these predictions. Furthermore, I find that incentives for CEOs likely facing binding short-selling constraints decrease with systematic as well as nonsystematic risk, as predicted by theory. Thus, compensation practice is consistent with predictions of theory. (C) 2002 Elsevier Science B.V. All rights reserved.